HMRC NEWS
Revenue and Customs Brief 4 (2026): VAT liability of supplies of electricity from public electric vehicle charge points
In the recent First Tier Tribunal decision, Charge My Street Limited, the Tribunal found that reduced rate VAT (5%) may apply where electricity for vehicle charging is supplied to an identified person at identifiable premises, such as public car parks, provided usage does not exceed 1,000 kWh per month, and clarified that the premises do not need to be owned, controlled, or even be buildings. Our summary of the decision can be read here. HMRC has now released a new brief to confirm that it has applied to appeal the decision and maintains its current policy that electricity supplied at public EV charge points remains subject to the standard VAT rate.
How VAT affects charities (VAT Notice 701/1)
The above guidance can be used to find supporting information in relation to VAT and charities. The guidance was recently updated (at section 5.5) to cover the new VAT relief, coming into effect from 1 April 2026, for VAT registered businesses donating goods. This is a welcome change and we are pleased to say that Constable VAT Consultancy was one of the organisations directly involved in discussions with HMRC and the Treasury around this new VAT relief. We have released further comments around this which can be read here.
Check if you can register to act as an intermediary for the VAT Import One Stop Shop scheme
From 1 April 2026, UK VAT registered businesses can now register as an intermediary for the VAT Import One Stop Shop (IOSS) scheme. Further information is available in the guidance above.
Get help with using VAT online services
HMRC has recently published the above containing useful information to assist taxpayers to find out how to access guidance and videos to help with various VAT online services and the online VAT account.
Updates on VAT appeals
The above link can be used to check the list of VAT appeals that HMRC has lost, or partly lost, that could have implications for other businesses. The list of appeals has now been updated with 2 additions, 7 amendments and 6 removals.
CASE REVIEW
Court of Appeal
1. Further education is a business activity
The Court of Appeal (CoA) has held that grant funding received by Colchester Institute Corporation (the Institute) from government (Skills Funding Agency [SFA] and Education Funding Agency [EFA]) is consideration for VAT purposes, payment for supplying education and vocational training services to young people, a VAT exempt business activity when those services are supplied by an ‘eligible body’.
Taking a step back, the Institute, recovered VAT it incurred on building works. HMRC believed that VAT accounting adjustments were required under the Lennartz principles, deemed output VAT charge in relation to the Institute’s non-business activities. The Institute revisited the position (it had previously made the adjustments) and sought a VAT refund claim of overdeclared output VAT between 2010 and 2014 on the basis that its supplies of education and vocational training is a business activity and the funding it receives is payment for the delivery of those supplies.
The issue for the CoA to consider, in headline terms, was whether there is a nexus between the supplies of education and vocational training the Institute provides, and the funding it receives. On this direct link point, HMRC argued that an immediate link between the funding received by the Institute and the benefit derived by an individual student was absent. HMRC noted that when the funding was applied for and received, the identity of students who would attend the courses was not known, and this meant that the funding could not be consideration in relation to supplies to the student.
The Institute’s position was that scrutiny of the funding arrangements made it clear that funding was awarded in return for supplying education to students. The fact that funding was not calculated and paid in relation to each individual student and course did not impact the economic reality of the position. On the student identity point, once enrolled and study began, funders were notified of who was studying a course or subject.
The CoA reviewed the contractual arrangements between the parties. These agreements are supportive of the Institute’s argument that it was receiving funding in return for supplying educational services of approved courses to students. It is interesting to note that the funding agreements included a clawback provision such that should the number of students anticipated not materialise, sums would be due to be repaid to the funders.
The CoA held that, in the case of the Institute, the requirement that a direct link between the funding received and the supply of education and vocational training was met.
Constable VAT comment: The VAT liability of grant funding received and whether that income represents consideration for a supply, for VAT purposes, must be carefully analysed in relation to the facts on a case-by-case basis. There are material VAT implications to whether grant funding received is outside the scope of VAT or consideration for a supply of services. As arrangements with the funding bodies in this case (SFA and EFA) is uniform, the decision of the CoA would, we would reasonably expect, apply to other organisations receiving income from these funders. The wider impact of this decision will require some thought.
In headline terms, grant funding is often outside the scope of VAT; however, if the recipient of the funding is required to supply goods or services to receive sums the position may change. There is also the added complexity of third-party consideration. The Institute has argued that the grants it received represented consideration for its VAT exempt supplies of education and vocational training, beneficial in this case as its supplies were not outside the scope of VAT and therefore a Lennartz adjustment was not triggered. However, if a grant is consideration and not outside the scope of VAT, this may mean that charities, for example, must treat sums received as VAT inclusive and account for output VAT on sums received, if the funder is not prepared to pay an additional 20%. There could also be implications for academies and those charities intending to use or construct a property for use for a relevant charitable purpose (RCP).
HMRC has issued limited updated guidance confirming the Commissioners do not intend to appeal the decision and intend to consult with stakeholders. The brief can be read here.
Upper Tribunal
2. Boehringer Ingelheim: VAT and price rebates
HMRC appealed against a decision of the First-tier Tribunal (FTT) in which the FTT allowed Boehringer Ingelheim Limited’s (BIL) claims to recover output tax accounted for on supplies of pharmaceuticals for which it was held there had been a post supply price reduction.
BIL supplies pharmaceutical products to the NHS. Those supplies are made either directly to NHS healthcare services providers (HSPs) and pharmacies; or indirectly through wholesalers. These sales are liable to VAT at the standard rate. Similarly, sales by Wholesalers to HSPs and Pharmacies will also be standard rated. The products will either be used by HSPs in connection with “free at the point of use” NHS services in a hospital setting or dispensed for home use by patients by pharmacies. Where used in a hospital setting, there is no supply for VAT purposes. Where dispensed for a fee the supply made is zero-rated.
The Secretary of State may impose or permit schemes limiting price and/or profit or to otherwise manage the cost of pharmaceutical products purchased for and used by the NHS. In the period subject to this appeal, there were two voluntary schemes: the Pharmaceutical Price Regulation Scheme (PPRS) and the Voluntary Scheme for Branded Medicines Pricing and Access (VPAS). As the Department of Health and Social Care was responsible for ultimately funding the NHS, BIL made significant payments to the DHSC in accordance with the affordability mechanism set by these schemes. BIL considered that these payments represented a price rebate amounting to a refund of consideration on earlier supplies made and sought to reclaim output VAT of £21,488,166.66.
The FTT held that the payments made to the DHSC reduced the taxable amount of BIL’s supplies on the basis that DHSC functioned as the economic final consumer having ultimately borne the cost of the medicines through its funding of the NHS.
HMRC appealed to the UT on the grounds that the payments made by BIL fell outside the scope of Article 90 of the Principal VAT Directive (PVD). Article 90 provides that “where the price is reduced after the supply takes place, the taxable amount shall be reduced accordingly”. HMRC argued that the payments did not relate to any identifiable supply of medicines but rather operated as a general levy on revenue, akin to a profit regulating mechanism in the event that the FTT was correct to hold that Article 90 applied, it was incorrect to determine that a post supply adjustment was possible where the supply into final consumption was zero-rated for VAT purposes.
Whilst the UT agreed with the FTT that there must be a direct link between supply and consideration, there must be a direct link between a price reduction and the consideration for the supply for output VAT to be adjusted. The DHSC was not part of the supply chain as it was not paying for specific medicines (it was simply providing the ultimate general funding to the NHS) and was too far removed from the actual supplies to be treated as a final consumer. This being so, there could be no retrospective price reductions for VAT purposes. The only potential exception to this would be in limited cases where supplies were made directly from BIL to DHSC.
The UT also considered HMRC’s alternative argument and agreed that even where the original supply was to the DHSC, no price reduction could be applied where medicines were supplied to the final consumer as a zero-rated supply. This would lead to a breach of fiscal neutrality and result in an absolute VAT loss.
CVC comment: Although this clarifies the UK’s current stance in which NHS pricing scheme payments can be treated as price reductions, this contradicts with similar previous decisions in the EU which allowed the taxpayer to reduce its taxable amount and reclaim output VAT and is a disappointing result for the pharmaceuticals sector. Given the significant sums involved it is expected this case will continue to proceed through the Courts. We understand there are a large number of appeals made by other pharmaceutical manufacturers in the UK in respect of similar claims made by them standing behind this appeal. This case once again highlights the importance of a direct link between payments and supplies, as well as the specific contractual and funding arrangements.
First Tier Tribunal
3. Zero Rated Mega Marshmallows
This is the latest, and perhaps (maybe!) the last, update in the long ongoing dispute in relation to Innovative Bites Limited’s (BIL) Mega Marshmallows (the product) and its correct VAT treatment, specifically whether it is a zero rated food item or standard rated confectionary. The dispute commenced in 2019 when HMRC took the view that the products were standard rated and assessed £472k output VAT for VAT accounting periods covering June 2015 to June 2019. BIL appealed the VAT assessment and the First tier Tax Tribunal (FTT), using a multi-factorial analysis, concluded that the product is not confectionary and is therefore zero rated. Our summary of the decision can be read here. HMRC appealed to the Upper Tribunal (UT); however, the UT upheld the decision. Our summary of the decision can be read here.
HMRC then appealed to the Court of Appeal (CoA) which disagreed with the UT stating that ‘save in the case of absurdities’, generally, if the terms of Note 5 are met that is conclusive in determining that the product is standard rated confectionary. As a result, it was found that if the product falls within the definition of ‘sweetened prepared food which is normally eaten with fingers’, the product is standard rated. However, the FTT did not reach a conclusion on this question; therefore, the case was remitted to a new panel of the FTT to reconsider.
It was agreed by all parties that the product is ‘sweetened prepared food’; therefore, the only dispute for the FTT to determine was whether the product is ‘normally eaten with fingers’ or not. The FTT identified there are 4 ways to eating the product:
- Roasted on a skewer/stick and eaten from skewer
- Roasted on a skewer, taken off and once sufficiently cooled, eat with fingers
- Roasted on a skewer, inserted in the middle of two biscuits, eaten as a s’more as sandwiched between crackers
- Eaten straight from the pack with fingers
The FTT states that way B and D are considered as ‘eaten with fingers’ whilst A and C are not. Following an in-depth consideration, the Tribunal concluded the following:
“We find that 1) Way A, eating direct from the skewer, is more frequently used than Way B, taking from skewer and eating with fingers; 2) Way C, s’more, is more frequently used than Way D, unroasted from the packet. It therefore follows that in aggregate, we find as a fact that that the Product is more frequently eaten by one of the non-finger ways than by one of the with-the-fingers ways. To put it in mathematical formulation, because A > B and C > D, (A + C) > (B + D).”
As a result, the conclusion was that the product is not normally eaten with fingers and therefore it is a zero-rated food item. The appeal was allowed.
Constable VAT comment: Having progressed from the FTT to the CoA already, it is possible that the new panel of the FTT has now brought this long-running dispute to a conclusion regarding the VAT treatment of Mega Marshmallows; however, it will be interesting to see if HMRC appeals this decision to the UT. Whilst the unusual nature of the dispute certainly has been interesting to those working in VAT, it does raise the question whether the zero rating provisions for food items are possibly too complex, bearing in mind the number of cases heard by the courts as to whether a product is standard or zero rated. In our view, if a mathematic equation is used to determine if something is eaten with fingers or not, perhaps it is indicative that the zero rating provisions (VAT legislation and HMRC guidance) are overly difficult to analyse and open to interpretation leading to many disputes over recent years as the VAT liability of the supply is commercially important to businesses. This long-running saga certainly demonstrates that in cases of ambiguity professional advice is highly recommended, but, even then, an on-balance conclusion may be drawn. Whilst material sums of VAT could be at stake, especially considering the potential wider application of a decision to other businesses, it does make us question whether the significant cost to taxpayers (not only those directly involved in an appeal but the wider taxpayer base) and HMRC in terms of time and cost is worthwhile, considering the resource required when attending an independent tribunal hearing.
4. Kittel principle: Knew or should have known
The FTT decision in Transwaste Recycling and Aggregates Ltd (Transwaste) is another case taken by HMRC applying the Kittel principle i.e. Transwaste knew or should have known that its transactions were connected with the fraudulent evasion of VAT. VAT assessments and penalties, 5 decisions in total, (including against directors personally) were issued by HMRC covering VAT accounting periods between 06/16 and 12/19, totalling £695k. The hearing took place over 6 days between May and November 2025.
The FTT upheld, in part, Transwaste’s appeal against the VAT assessments denying the company input VAT based on the Kittel principle. The FTT considered transactions with many suppliers over time and concluded that, although there had been VAT fraud in the supply chain, and the company had carried out limited due diligence, HMRC had not proven in all cases that the company had any awareness that it had been party to VAT fraud. The recovery of VAT incurred was allowed in respect of those transactions where HMRC had not proven that the Kittel tests applied and, as a result, penalties imposed were withdrawn.
In a partial success for HMRC, the FTT upheld the denial of input VAT recovery and the imposition of penalties in relation to transactions where it felt that Transwaste “knew or should have known” that the transactions were connected with the fraudulent evasion of VAT.
Constable VAT comment: The release of FTT decisions suggest that HMRC’s Fraud Investigation Service (FIS) has been/is focused on pursuing several ‘Kittel’ type cases, with quite limited success in the courts. HMRC FIS often only discovers that fraudulent evasion of VAT has occurred when the fraudsters have disappeared, HMRC FIS has a difficult task to be effective in real time. This may not be surprising in some regards, VAT being a self-assessing tax. That said, HMRC then seeks to challenge legitimate businesses entitlement to reclaim VAT paid in good faith to suppliers, disadvantaging those businesses. These cases seem to take a very long time to be heard (the first HMRC decision in Transwaste was issued in June 2018 taking 7 years to be reach the FTT) and HMRC knows that if it is unsuccessful at the FTT, it will not usually be required to contribute towards taxpayers’ costs, this leaves a question around fairness, bearing in mind it has a poor track record of success in these cases, and HMRC’s most recently published list of VAT appeal updates (14 April 2026) indicates that HMRC has not sought permission to appeal the cases it has lost to a higher court.
5. Single or multiple supplies: Hampers
Some VAT cases are a timely reminder of the application of fundamental VAT rules and issues. Clearwater Hampers Limited [2026] UKFTT 00567 is very much an example of such a Tribunal case returning to the question of single or multiple supplies. The question posed to the Tribunal was whether when Clearwater supplied a luxury hamper, was the wicker basket that contained food items a separate supply or simply ancillary to the goods therein – a means of better enjoying those goods? Many food items are zero-rated for VAT purposes and, as one might expect, wicker baskets are not. If the basket was ancillary to the goods therein, it would follow the VAT liability of those goods falling to be apportioned between the standard rated and zero rated items in the basket.
Clearwater appealed HMRC’s decision to refuse a claim for the repayment of output tax on supplies of food and drink gift hampers which come packaged in a lidded wicker basket totalling £425,529 over VAT periods 04/20 to 01/24. Clearwater had accounted for output tax on the various containers that it used for its hampers. Previously, HMRC agreed following receiving an error correction notification from Clearwater that the containers which used a cardboard box, bamboo tray or open basket should be subject to a composite VAT rate determined by the contents of the basket and proportion of standard and zero-rated items. HMRC refunded the overpaid output VAT.
A further error correction was submitted for the lidded wicker basket. HMRC refused this concluding that the basket was a separate aim for the consumer, an aim in its own right, and hence rightly subject to full output VAT rather than a composite rate determined by the contents.
The Tribunal considered notable legal precedent that will be familiar to those that have had cause to consider this area, notably referring to exceptions to single supplies as follows:
“(1) There is a single supply where one or more supplies constitute a principal supply and the other supply or supplies constitute one or more ancillary supplies which do not amount to an end in themselves for customers but a means of better enjoying the principal service supplied: see Card Protection Plan Ltd v Customs and Excise Comrs (Case C-349/96) EU:C:1999:93, [1999] STC 270, [1999] 2 AC 601 (CPP Exception).
(2)There is a single supply where two or more elements or acts supplied by the taxable person are so closely linked that they form (objectively) a single, indivisible economic supply, which it would be artificial to split: see Levob Verzekeringen BV v Staatssecretaris van Financiën (Case C-41/04) EU:C:2005:649, [2006] STC 766, [2005] ECR I-9433 (Levob Exception)”
The Tribunal confirmed that this is a subjective analysis and should be based upon the typical consumer for the type of product being considered:
“The essential test is whether, from the perspective of the average consumer, the supply in question does not constitute an end in itself but is a means of better enjoying the principal supply”.
The Tribunal revisited numerous cases regarding more elaborate packaging and the contents therein and this is a very useful resource should a similar issue be faced. Various points were weighed by the Tribunal including the marketing of the product and the baskets use as a reusable “container”, the relevant cost of the hamper compared to other packaging options and the presentation to the consumer.
HMRC fell into a previous seen trap of relying on its own guidance as if the law. This guidance concludes that baskets are a standard-rated separate supply. Public Notices are not legally binding unless that has been specifically provided for in the legislation. For the greater part, similarly to HMRC manuals, they are simply a document that records HMRC’s understanding of the law.
The Tribunal concluded, following the Card Protection Plan precedent that:
“We find that the essence of the Product is that it is a gift of food and drink items that is attractively and securely packaged in a way commensurate with its value. The lidded basket serves to present and protect the Food and Drink Supplies and thereby is a means of better enjoying them as the gift that the Purchaser intends to give. The supply of the lidded basket is therefore ancillary to the Food and Drink Supplies, and shares their tax treatment, such that the composite VAT rate calculated for the Product as a whole is to be determined from the relative value of the zero-rated and standard-rated Food and Drink Supplies alone.”
The Tribunal was critical of HMRC’s approach to arguing in court as if its guidance was the law and was much influenced by the facts specific to the hampers in question. The food and drink in the hamper was of high value to be gifted and was the principal aim, the wicker basket a means to better enjoy the contents as a gift and for other practical reasons of protection of the products. The appeal was allowed.
Constable comment: This is a helpful case for those in the hamper sector and it seems possible that there will be subsequent opportunities to reclaim output VAT. Single and multiple supply arguments tend to be technical and subjective and HMRC often reluctant to be persuaded that zero-rating or exemption prevails in such cases. It is essential that where disagreement with HMRC is on the horizon that matters are managed effectively from the outset. Once HMRC is entrenched it is often impossible to reverse a stance (without litigation) but sometimes HMRC is more open to discussions before that.
Please note that this newsletter is intended to provide a general overview of the subject. No liability is accepted for the opinions it contains or for any errors or omissions. Constable VAT cannot accept responsibility for loss incurred by any person, company or entity as a result of acting, or failing to act, on any material in this blog post. Specialist VAT advice should always be sought in relation to your particular circumstance.